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Moody's: Growing liquidity stress in real estate credit negative for India banks

The increasing liquidity stress among real estate developers in India is credit negative for the country's banks, Moody's said Sept. 19.

Earlier in September, real estate-focused nonbank finance company Altico Capital India Ltd. defaulted on a scheduled interest payment on a loan due to inadequate liquidity.

Although Indian banks' exposure to Altico Capital is modest and accounts for less than 0.1% of total banking system loans, the default indicates increasingly tight liquidity among property developers, which is credit negative for banks given their significant exposure to the real estate sector.

Moody's believes that Altico Capital is facing liquidity constraints because of a deterioration in the credit quality of its loans to real estate developers, which are facing difficulty in repaying and refinancing their maturing obligations as a result of slowing property sales.

Among Moody's rated banks, Yes Bank Ltd. and IndusInd Bank Ltd. have the largest direct exposure to the commercial real estate sector and would be vulnerable to asset quality distress if the real estate sector continues to deteriorate.